Going to pot

Legal weed not necessarily green

Growing marijuana is a complex and expensive enterprise. Yet the cost of doing business has not scared off hundreds of entrepreneurs. Sean Norton, of Medicine Man in Denver, cleans grow light covers inside the warehouse where the company grows 20,000 squa

PHOTO BY KAI-HUEI YAU/MCT

On the surface, the medical marijuana business sounds at least half baked.

With the state setting up steep financial barriers to entry, it is not a business for just anyone. The application fee for a single cultivation center – there will be 21 – is $25,000, with the lucky winners having the privilege of paying a $200,000 license fee for the first year of operation and $100,000 per year after that. The state is also requiring cultivation center operators to demonstrate they have $500,000 in liquid assets, and they must also post $2 million surety bonds for each center.

There will be 60 dispensaries where marijuana will be sold to patients to serve the entire state, a fraction of the number within Denver or Los Angeles or other cities where marijuana, medical or otherwise, has long been legal under state statutes. The state is charging $5,000 to apply for a dispensary license, plus a $30,000 annual license fee (reduced to $25,000 after the first year), and operators must post $50,000 surety bonds and show that they have $400,000 in liquid assets.

There are no guarantees beyond 2017, when the state’s medical marijuana pilot program approved by the legislature is scheduled to expire. And so budding entrepreneurs must trust that lawmakers will take action to extend the law or face going out of business.

It amounts, really, to a two-year window for growers, users and dispensers to make the case that medical pot is worthwhile, given that it takes four months to grow a crop and the state isn’t yet accepting applications for dispensaries, grow centers or even cards from patients who must find a doctor willing to write a recommendation for pot to treat one of 30 qualifying conditions. Melaney Arnold, spokesperson for the state Department of Public Health and the state’s medical cannabis pilot program, expects the first legal sales early next year. Christopher Stone, a Springfield lobbyist who is working with a group of potential investors that hopes to win licenses for three cultivation centers and an equal number of dispensaries, figures it will be next May.

All told, Stone says that his group is prepared to spend more than $10 million on license fees and applications and bonds to get into the nascent marijuana industry. Why?

“Generally, when you’re first in a deal, you tend to make money,” Stone says.

The pot business in Illinois will not be a get-rich-quick scheme, according to some. For one thing, the list of qualifying conditions is relatively small compared with other states. Chronic pain is not on the list, and issues with pain account for 90 percent of medical marijuana cards in other states that have legalized pot for medical reasons, says Dan Linn, executive director of the Illinois chapter of the National Organization for the Reform of Marijuana Laws who has opened a consulting business to help would-be pot entrepreneurs get started.

“Eighty percent of the people who call me haven’t read the rules, haven’t read the legislation,” Linn says “They’ve only seen that medical marijuana is legal. You can’t take these people seriously if they haven’t done their own homework.”

Stone predicts that cultivation centers will tend toward the large side in Illinois, and he said he believes that the business can be profitable from the start. Linn isn’t so sure. Pot entrepreneurs should be prepared to lose money in the early years, he says. The payoff will come when – and if – the state relaxes laws on marijuana use even further, he predicts.

“The business people see this as a mid- to long-term investment,” Linn says. “This is a five- to ten-year play. There’s no room for small business entrepreneurs in Illinois yet.”

Estimates on the number of patients who will get cards allowing marijuana consumption range from 15,000 to 100,000. The state has said that patients must have longstanding relationships with physicians who recommend pot, and so the phenomenon of doctors handing out cards in nudge-nudge-wink-wink fashion to anyone who pays isn’t supposed to happen here.

In Chicago, the state has made clear that so-called pot doctors who operate out of dispensaries will not be allowed. Tammy Jacobi, chief executive officer of Good Intentions in the Windy City, opened her business a year ago in hopes of cultivating a clientele who would get health care from a doctor associated with her company who would recommend marijuana. But state regulators, Jacobi says, have told her that they won’t tolerate a doctor recommending pot who has ties to a business that focuses on medical marijuana.

“It didn’t fly,” Jacobi says. “But we were OK with that.”

Now, Good Intentions is offering to help would-be patients obtain medical marijuana cards, which will cost $100, for a fee of $159. It is not a simple as it might sound, according to Jacobi and others. The state is requiring fingerprints from applicants, and there is also the matter of finding a doctor who will recommend pot. The medical establishment has shown signs of balking. In Chicago, Swedish Covenant Hospital has said that it would like to dispense marijuana but won’t do it because pot is illegal under federal law and so the hospital would risk losing federal Medicare and Medicaid reimbursements if it sold marijuana.

Linn also said that finding doctors to recommend marijuana may not be easy. Last year, the Marijuana Policy Project published a list of 250 doctors in Illinois who endorsed the state move to legalize pot for medical uses. Linn said that his colleagues have called several of those doctors on the list and found no one who was willing to actually recommend for patients. Several, Linn said, were deluged by would-be patients after their names appeared on the pro-medical marijuana list.

“We contacted a number of those doctors and not a single one of them would go on the record and say they would actually write a recommendation,” Linn said. “I don’t think you’re going to see a large number of patients, especially in the first year.”